WHITE HOUSE WOES : Documents Hint at More Help by Mrs. Clinton for S&L; Owner

How much did Hillary Rodham Clinton know in the early and mid-1980s about the troubled business dealings of her Whitewater partner and sometime law client, James B. McDougal? And did she play a role in his efforts to bail himself out?

These questions have become an important part of the Whitewater controversy facing the President and Mrs. Clinton. And in the incremental way that the affair is now developing, new documents have surfaced that don’t fit comfortably with Mrs. Clinton’s explanation that her contacts as an attorney with McDougal and his Arkansas savings and loan company were purely routine and peripheral.

The Clintons contend they were remote from the tangled financial affairs of Madison Guaranty Savings & Loan, owned by McDougal, their partner in the Whitewater real estate development. The thrift was seized by federal regulators in 1989 at a cost to taxpayers of $47 million.

As a partner in the Rose Law Firm in Little Rock, Ark., Mrs. Clinton represented McDougal’s S&L; in 1985 before the state securities commissioner (appointed by her husband, then the governor) on a plan that would allow the thrift to sell preferred stock to boost its capital reserves and meet federal regulators’ demands. At a press conference in April, Mrs. Clinton said she acted only as the “billing attorney,” while the case was actually handled at the firm by a junior associate.

But documents obtained by the Resolution Trust Corp. suggest that Mrs. Clinton’s efforts on McDougal’s behalf were both more active and more longstanding than that.

In 1983, the documents show, Mrs. Clinton took a role in mediating a dispute between McDougal and the Rose firm over fees from earlier legal work. McDougal had refused to pay Rose’s bills, prompting the firm’s managing partner, Joseph Giroir, to declare that he did not want McDougal as a Rose client again in the future, according to partners at the firm.

But Mrs. Clinton interceded, and documents and interviews with participants suggest that her mediation may have made possible the subsequent Rose efforts on behalf of the S&L.;

In an Oct. 10, 1983, letter obtained by the RTC, Giroir wrote McDougal that he was submitting a new bill “pursuant to your discussions with Hillary Rodham Clinton.”

While the savings and loan matter was pending before the state commission, McDougal indicated an interest in ways Mrs. Clinton could help with Madison’s dealings with the state.

“I need to know everything you have pending before the Securities Commission as I intend to get with Hillary Clinton within the next few days,” McDougal wrote to Madison President John Latham in a July 11, 1985, internal Madison memo obtained by the RTC.

The White House acknowledged that Mrs. Clinton may have interceded while at Rose to help mediate the billing dispute. As for the later memo from McDougal, John Podesta, a White House spokesman on Whitewater matters, said Mrs. Clinton did not recall getting together with McDougal in the summer of 1985 to review the embattled S&L;’s pending issues.

Regardless of any contacts between them and her part in patching up the Madison-Rose relationship, Administration officials asserted, Mrs. Clinton had no significant professional role with McDougal’s financial institutions or any knowledge of the controversial practices cited after Madison Guaranty’s collapse.

But critics suggest that having Mrs. Clinton and Rose in his corner may have given McDougal the potential of exercising undue influence on state authorities. A five-month-old special counsel’s investigation is probing whether political influence may have been used to prolong Madison’s existence and run up the eventual cost of the RTC bailout.

Former Madison President Latham said that McDougal, who was the majority stockholder in Madison and effectively controlled day-to-day management of the S&L;, told him to use Rose for legal work. In one conversation “he said, go to Rose, because Bill and Hillary are my friends. So I used them (Rose),” Latham said.